Spending restraint welcome but higher tax not

Labour’s signals of
more discipline in spending are welcome, but its higher tax
proposals are concerning, says BusinessNZ

Commenting on
the alternative budget released by Labour today, BusinessNZ
Chief Executive Phil O’Reilly said its costings and
commitment to frugal spending would be welcomed by the
business community, although he cautioned that some of the
costings had been heavily qualified by economists
involved.

“Labour’s proposal for a firm approach to
tax avoidance by multinational companies is sensible in the
interim while international measures to harmonise
international tax law are being worked through,” Mr
O’Reilly said.

But the centrepiece of the alternative
budget – an increase in the top personal tax rate and
trust rate to 36 percent – would not aid competitiveness
and would penalise those who tended to invest
most.

“Higher income and trust tax along with a new
capital gains tax are not good signals for anyone wanting to
invest in New Zealand’s growth.”

He questioned
whether the proposed capital gains tax would raise much
revenue, given the proposal included the ability for losses
to be offset against capital gains.

He said the proposal
to abolish the current targeted R&D funding regime and
reinstate general R&D tax credits was surprising given the
distortions arising from their past use in other
countries.

“General tax credits for all business bring
an incentive to claim credits for spending unrelated to
research and development, diminishing the amount actually
spent on R&D. Targeted grants based on company performance
and co-investment are a more transparent form of
assistance.”

Another feature of the alternative budget
– the proposal for the government to build and sell 10,000
homes every year – would be an unwelcome intrusion of
government in the private sector, Mr O’Reilly
said.

“The key problem here is local government zoning
decisions restricting land supply and pushing up prices. A
better intervention would be to require better zoning
decisions by local
government.”

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